Presidential Faculty Compensation Proposal

In
accordance with Section 4.5 of the Regents policy
Faculty Tenure, the Faculty Senate
approves the President's proposal for a 1.15% reduction in salary for all
faculty for the 2010-2011 academic year. The authority granted by approval
of the proposal extends only to the identified 1.15% reduction for
2010-2011.

The
President’s proposal for a temporary reduction in faculty salaries is
brought in response to extraordinary reductions in state support. The
University of Minnesota’s state-appropriated (operating & management)
budget has been cut $191 million in the last two fiscal years, including $36
million as recently as February 15, 2010. As a result of these unprecedented
cuts, the University’s estimated budget shortfall—the amount by
which projected expenses exceed revenues—for the upcoming fiscal year
(FY11) is approximately $132 million.

In
response to decreasing state support, the University has solicited increased
donations, raised tuition, and cut expenses. Both donations and tuition are at
all-time highs, and substantial cuts in expenditures have been made. According
to the University’s CFO, Mr. Pfutzenreuter, $95 million in cuts were made
across the University in 2009. Since June 2009, $34.5 million has been cut or
reallocated from Central Administration’s past and projected budgets,
including savings of more than $10 million from the elimination of more than 140
staff positions from central administrative units. Mr. Pfutzenreuter reports
that Morrill Hall budget cuts have been proportionally larger than those in
academic units.

Unfortunately,
the cuts and increased revenues are insufficient to meet the financial demands
of FY11. One of the challenges in cutting costs in response to revenue loss is
that 70% of the University’s nearly $3 billion annual budget is devoted to
employee compensation. It is in response to these circumstances that President
Bruininks has proposed a one-time 1.15% cut in pay for all University employees
in FY11, with executive officers (deans and above) taking a 2.30% cut, and has
brought the proposal to the Senate pursuant to Section 4.5 of the tenure code.

The pay
cut is temporary and not a cut in base pay. The associated savings will stay
within colleges and no cross-college transfers will take place. Should an
extension or alternative cut be needed, the President must return to the Faculty
Senate for another vote. It is difficult predict at this time how the University
will meet budgetary needs in FY12 and beyond, but any decrease in faculty
salaries, temporary or otherwise, will be subject to the provisions of the
tenure code requiring the involvement of faculty governance.

Based on
the administration’s extensive consultation with the Senate Committee on
Finance & Planning, we concluded that there was sufficient understanding of
the problem and proposed solution to move forward to approve the
President’s proposal. Substantial information on the University’s
budget and finances is regularly shared publicly through annual independent
audits, reports, and internal audit committee documents presented to the Board
of Regents and available on the University’s website. The University has
taken and continues to take steps to explore additional cost-cutting
opportunities, including the hiring of a consultant to review purchasing reform
opportunities. The University already spends considerable funds on regular
financial audits (nearly $700,000 to independent auditors in 2009). It is not
clear that a massive external evaluation of all University financial decisions
is warranted or cost-effective. (We note that the cost of an external
evaluation of this kind to be done at UC-Berkeley is $3 million.)

The FCC
discussed with the President a variety of ways to allocate salary cuts,
including his original proposal for furloughs and the more equitable proposal
for a uniform small percentage salary cut. The present proposal spreads the
burden across the University, and the flat percentage cut means those with
higher salaries will contribute higher dollar amounts. Although we recognize
the difference in impact on employees at different salary levels, we also see
that the difficulties caused by the 1.15% cut will be mitigated for
lower-salaried employees because they will receive a
27th pay check during the same year.
Among concerns with instead mandating substantially larger cuts to more
highly-paid individuals is that such a plan would likely be divisive and create
resentment, and it could cause the departure of some of the University’s
most distinguished and productive faculty and staff. Moreover, the
President’s plan allows faculty and P&A staff to contribute more by
taking up to 10 voluntary furlough days, with the savings remaining in their
colleges and therefore helping to prevent further erosion of jobs for others.

The FCC
also considered the implications of rejecting the President’s plan. First,
the President has stated that if his proposal for cuts to faculty salaries is
rejected, he will not reduce wages and compensation for other employee groups
and will need to balance the FY11 budget in other ways. The likely result would
necessarily include additional substantial cuts to unit budgets, which the FCC
believes would harm our core academic mission and cause layoffs of non-faculty
employees. Second, the FCC is concerned that many in the legislature and the
public will not understand why the faculty, who enjoy the benefit of tenure,
would be unwilling to take a 1.15% pay cut in order to balance the
University’s budget, while so many in the state suffer more severe cuts in
pay and benefits, or the loss of their jobs.

In light
of the immediate problem and the enormous financial and strategic challenges
that lie just ahead, the FCC believes the President’s plan is a reasonable
response to the projected budget shortfall in FY11.